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Corporate Governance (CG) of banks needs a special attention for many reasons, one of which is that banks are highly vulnerable for financial manipulations. Many factors make up the CG of a firm. It is highly difficult to realize what exactly CG is and define it. Yet, research is essential to understand the rising needs of good CG practices and the impact of such practices. Since many factors make up CG, in this study a CG Index especially designed for banks has been prepared. To know the effectiveness of corporate governance, the index was divided into six sub-indices and to test the index it was used to find correlation of CG practices with firm value measures in terms of price to book value (PBV) and Tobin’s Q as dependent variables. We employed the fixed regression model was run to examine the relationship between the sub-indices and the dependent variables. Apart from CG index, capital adequacy ratio (CAR) and net NPA ratio were also taken as independent variables. Supporting to the existing literature, significantly high correlation was established between CG and PBV and Tobin’s Q, especially by the board of directors and CAR. This study also indicates that the index can be used as proxy for understanding the CG practices of banks in India. |
